Livestock Analysis (VIP) -- January 23, 2013

Price action: Lean hog futures settled high-range and narrowly mixed through the May contract. Deferred months also settled high-range, but with losses of 22 1/2 to 45 cents.

Fundamental analysis: Lean hog futures faced pressure much of the day due to a disappointing Cold Storage Report that showed more frozen pork stocks at the end of December than traders had anticipated. But yesterday's gains in the pork cutout market and steady cash hog bids helped futures to finish at or near the top of their daily trading range. Supplies are tightening seasonally (even more so due to the recent cold snap) but packers are thought to be generally well supplied for near-term needs.

Technical analysis: February lean hogs settled just off session highs and appear headed for a test of last week's high of $86.30. Support is layered from yesterday's low of $85.10 to the January double-bottom low of $84.15.

Hedgers: Carry all risk in the cash market for now.

Feed needs: 25% of 1st-qtr. corn needs are covered in long March corn futures at $6.87 and 25% of 2nd-qtr. corn needs are covered in long July corn futures at $6.78 3/4. 25% of 1st-qtr. protein needs are covered in long March soybean meal futures at $395.30 and 25% of 2nd-qtr. protein needs are covered in long July soybean meal futures at $388.00.

Live cattle

Price action: Live cattle futures saw two-sided trade today and ended narrowly mixed, which was good for a mid- to high-range close.

Fundamental analysis: Early support came from ideas the downside has been overdone recently, as futures remain oversold according to the 9-day Relative Strength Index. But early buying was limited as traders factored in a negative Cold Storage Report, which showed frozen beef stocks at the end of December above expectations. Moreover, the report showed pork and poultry stocks also above expectations.

Futures could have a difficult time building on today's late-session recovery after cash cattle trade began in Texas today at $122, which is down $3 from last week. This raises concerns about packer demand, especially ahead of the early February shutter of a beef processing plant in Texas.

Technical analysis: February live cattle futures are trading at nearly a $4 premium to early cash cattle trade, which opens fresh downside risk for the contract. Support begins at last week's low of $124.85 and extends to the 2012 low of $124.30. Contract-low support lies at $123.70. A return above the September low of $127.90 would suggest a low has been posted.

Feeder cattle

Price action: Feeder cattle futures firmed into the close due to weakness in the corn market. While January feeders ended 20 cents lower, the rest of the market ended 15 to 92 1/2 cents higher.

Fundamental analysis: A combination of tightening calf supplies, weakness in the corn market and the fact January futures are trading at a discount to the cash index helped lift futures into the close. Focus in the market the next two days will be on position squaring ahead of Friday's Cattle on Feed Report, which is expected on show On Feed at 95.6%, Placements at 104.1% and Marketings at 93.2% of year-ago levels.

Technical analysis: March feeder cattle futures dipped below support at yesterday's low, but remained above last week's low of $144.65. The contract needs to complete a 38% retracement (at roughly $149.39) of the decline from the December high to last week's low to signal a low has been posted.

Hedgers: Fed cattle producers should carry all risk in the cash market for now. Feeder cattle sellers and buyers should also carry all risk in the cash market for now.

Feed needs: 25% of 1st-qtr. corn needs are covered in long March corn futures at $6.87 and 25% of 2nd-qtr. corn needs are covered in long July corn futures at $6.78 3/4. 25% of 1st-qtr. protein needs are covered in long March soybean meal futures at $395.30 and 25% of 2nd-qtr. protein needs are covered in long July soybean meal futures at $388.00.